Taiwan News, Staff Writer
2014-01-07 10:56 AM
In its special issue titled “2014 Global Megatrends," the British weekly The Economist pegs expected growth for Taiwan’s economy at 3.3%, with inflation for the year set at 2.2%. The Economist also predicts that even as the US economy begins getting back on track next year, China’s economy will falter somewhat. The magazine foresees an end to double digit growth in China, with a rise of about 7.3% for the year as economic problems begin to emerge one by one.
With the US cleaning up its banking sector and turning to shale gas to alleviate its energy problems, prognosticators see a turn-around and strong economic growth ahead for the US. Slowly phasing out quantitative easing (QE), together with already low interest rates, should attract significant capital flows back to the US. This, plus solid operations by US companies, will help them build on the success they enjoyed in 2013 and re-affirm the US as the world’s greatest economy. At the same time, reduced defense spending, government budget austerity, elimination of poorly-performing corporations and other measures will help keep the US on top of the economic heap in 2014.
The outlook for Taiwan is not quite so rosy. Most predictions see Taiwan swirling in the eddies of China’s economic whirlpool, kept away from numerous opportunities presenting themselves in other parts of the world. Taiwan is slowly sidling toward approval of the Agreement in Trade in Services with China even as it continues to completely misjudge the importance of joining the US-led Trans-Pacific Partnership (TPP). The Economist explains that Taiwan's leaders are constrained by “the need to balance long-standing Western alliances with the demands of the emerging mainland.”
President Ma has criticized the DPP for its long-standing advocacy of the ‘Go South’ concept first pushed by Lee Teng-hui when he was President. Lee said Taiwan should focus on closer economic relations with the nations of Southeast Asia, but Ma now disregards that idea, mouthing the mantra that moving closer to China will save Taiwan’s economy.
There is little hope in looking to Taiwan’s closer neighbors for help in reviving the island’s economy – in fact, the reverse is true. Japan and Korea are Taiwan’s competitors in the world economy and cannot be counted on to provide any opportunities for economic stimulation. The Japanese allowed the Yen to fall some 21.5% in value against the US dollar last year while the New Taiwan dollar slipped by only 2.7%, making Japanese exports more competitive with Taiwanese exports.
Meanwhile Korea is moving aggressively to ink trade agreements with many countries that bought from Taiwan in the past. Korea originally tried to drive the won down and compete on the basis of price, but now the Korean government is pushing for lower tariff barriers in overseas markets instead.
At the same time, Japan has been negotiating with the US regarding admission to TPP. For Taiwan, being locked into the Chinese economy means forfeiting its chances of joining TPP and becoming a closer trading partner with Pan-Pacific countries.
The Ma government’s inaction in the face of diminishing hopes of joining TPP is hard to fathom. TPP represents an extremely important opportunity for Taiwan to avoid being marginalized by Beijing in regional economic organizations.
Over the past few years, the Ma administration's economic policies have been overwhelmingly skewed toward China regarding investment, production and export. Year by year the island’s economy becomes increasingly dependent on China. Taiwan needs to wake up to the fact that the economic recovery shaping up for the US and Japan presents an excellent opportunity for Taiwan to spark its own economy by strengthening trade relations with the two nations. At the same time, China's red-hot growth appears to be cooling somewhat.
This is a good time to rethink the nation’s overall economic strategy. The vertical structures in the industries of China and Taiwan industry are no longer as complementary as they once were, having evolved into what is now a more competitive relationship. In the past, many industries in Taiwan supplied vital parts and components for the “Taiwanese guts” in products manufactured in China for export. Now, however, Chinese makers are beginning to push Taiwanese suppliers out of the market in the “Red Supply Chain.” Once a formidable force in the global supply chain, Taiwan-based suppliers now find themselves increasingly pushed aside.
The Ma government is well aware of the dangers of becoming overly dependent on China. When current Vice President Wu Den-yih was named premier in 2009, he spoke out about Taiwan’s overdependence on the Chinese market, urging that the nation shore up its trade links with virtually every other market in the world. This advice seems to have been forgotten in Taiwan’s inexorable drive toward closer relations with China.
Ironically enough, in his New Year’s address Ma Ying-jeou spelled out much of what is needed to help get Taiwan’s economy back on track. Ma noted, “Our trade with the 12 members of the TPP in 2012 accounted for a 35% share of Taiwan's total external trade, while trade with the 16 members of the RCEP accounted for a 56% share. These figures show how important it is, and how urgently necessary, that we join these two economic partnerships.”
Ma called for immediate action to save the economy: “We cannot wait any longer,” he said. “With countries everywhere now striving mightily to bolster their economies, only by seizing the present can we secure our future.” Ma is spot on in urging timely action. Unfortunately, his actions are louder than his words as his focus remains on reaching out in one direction – across the Taiwan Strait.
Taiwan cannot afford to deceive itself any longer with wishful thinking. The Ma government must recognize that China is not a panacea for all of its economic ills and take action to strengthen the nation’s economy through stronger ties with other economies around the world.